Accounting Costs Essay

2018 words - 9 pages

COST CLASSIFICATION AND BEHAVIOUR.
Cost: Reflects a monetary measure of the resources sacrificed or forgone to achieve a benefit such as acquiring a good or service. The term has multiple meanings: Different types of costs are used in different situations. Costs are developed and used for some specific purposes. The way a cost is used is to be used will define the way it should be computed. Cost Object: Any activity for which a separate measurement of cost is required. Something for which we want to compute a cost e.g. Product Product Line Department Division Geographical Area Cost unit: Unit of Production / service in relation to which cost are ascertained the unit is what is most relevant ...view middle of the document...

Consists all the materials that can be identified to a specific product unless it has negligible costs. Direct material cost are charged to the product as part of the prime cost example include, component parts specifically purchased for a particular job order or process. Part finished work is transformed from department 1 to department 2. This will become a finished work of department 1 but a direct material cost in department 2. Primary packing material like cartons and boxes.

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Direct Labour Consists of those labour costs that can be specifically traced or identified with a particular product. Example. Wages of operatives who assemble parts in the finished product. Wages to inspectors, analysts, testers specifically required for such productions. Foremen and anyone whose wages are specifically identified. N.B Salaries of factory supervisors or wages paid to staff in store department cannot specifically be identified to product therefore form part of indirect cost. Direct Expenses (Chargeable Expenses). - Expense incurred specifically for a particular job project or services. - E.g Royalties - Special design / Patent Right - Franchise - Hire of special machines or staff. BY FUNCTION. These are the costs classified as either - Production or - Non Production. i) Production Costs Costs incurred when raw materials are converted to finished goods and (WIP) - Prime Costs (D Materials: D Labour: D Expenses) - Factory overheads (Variable production overheads, Fixed production overheads).

Production Costs

D.L D.M

D.E

V.P.O F.P.O

ii) Non production Costs. Those costs which are not directly associated with production processes. Administration Selling Distribution Financing Costs.

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